Gregg Easterbrook, a Brookings Institution fellow in government and economic studies is quick to point out what’s different today, “Goods and services are plentiful; the price of gas is falling; ATMs are working. People are not losing jobs left and right.”
All this, in spite of the constant barrage of economic updates the media is only too happy to give out. Surprisingly whatever mess there is on Wall Street doesn’t seem to have made it down to Main Street. And this is a significant difference from the collapse of the 1930s, where millions were thrust into poverty.
Some Depression era stats…
- After the panic of 1929, and for 10 months into 1930, 744 US banks failed; a total of 9,000 banks were to fail in the 1930s.
- 13 million people, about 25-30% of the workforce, were out of work
- U.S. stock prices kept falling so that by late 1932 they had dropped to about 20% of their value in 1929.
- Gross National Product (GNP) fell 50% from 1929 to 1933.
- Industrial production fell by almost 45% between the years 1929 and 1932.
- Home-building dropped by 80% between the years 1929 and 1932.
Of course, CNN.com, ever willing to play up the fear factor, just ran a story that reads more like the tales of saving and self reliance older family members might tell you at the Thanksgiving table than a hard news piece. The advice is sound and nothing new — don’t carry so much credit, save as much as you can, don’t be afraid of hard work, know who you do business with, and never borrow without knowing how you’ll repay the loan. It’s no wonder my parents refuse to waste paper towels and are so careful with their money. They lived through those tough times, and remember.
What we have in our favor today is that…
- The Great Depression has been studied very closely, which hopefully means we’ve learned some important lessons. In fact, Fed Chairman Ben Bernanke is a student of the Great Depression.
- Social and financial safeguards are in place that were not before the Depression.
- Bank deposits are insured up to $250,000 by the FDIC, so unlike the Depression, depositors won’t lose any money, no matter what happens to their bank.
- Unemployment (at 6.1%, expected to rise to 7-8%) and foreclosure rates (at 14%, expected to rise 8-10% more) are rising, but are nowhere near the Depression era levels given above.
- Our economy is stronger, and more resilient than it was in the 1930s.
- The Federal Reserve is willing to make moves to help liquidity.
- Exports help our economy, and have risen 15% since December 2007.
What goes against us…
- We’re carrying more debt (excluding mortgage debt) than in the Depression; about 25.1% of our household income in 2006, as opposed to 9.6% during the 1930s.
- In 1929 less than 5% of the population owned stock; today an estimated 50% of us own securities either directly or though retirement accounts.
- A lemming mentality that follows along wherever the mainstream media wants us to go.
And though economists debate an exact definition, a depression is often defined as an annual drop in gross domestic product of 10% or more. And if that’s so, then such an economic catastrophy isn’t going to happen this year or next. Forecasters polled by the National Association for Business Economics have predicted GDP growth of 1.8% this year; 1.6% in 2009.
Maybe the sky isn’t falling after all…